CANADIAN MANUFACTURING
In a Global Context
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THE FUTURE
OF CANADIAN
MANUFACTURING:
LEARNING FROM
LEADING FIRMS
Canadian Manufacturing:
In a Global Context
Andrew Dooner
CANADIAN MANUFACTURING
In a Global Context
CANADIAN
MANUFACTURING:
IN A GLOBAL CONTEXT
ANDREW DOONER
An understanding of past and current trends is key to thinking about
the future of Canadian manufacturing. Given the global growth of both
manufacturing producers and consumers, the analysis of trends needs
to reach far beyond Canada’s borders. In this study, we provide a context
for thinking about Canadian manufacturing and the challenges it faces by
comparing it to some of its international competitors. The study begins
with a look at the role that manufacturing plays in both developed and
developing economies. The three global forces shaping future manufacturing
are considered next. Finally, we provide some international comparison
at both the macro and micro levels to give a deeper understanding of the
challenges Canadian manufacturing faces.
Cover image courtesy of Magna International.
CANADIAN MANUFACTURING
In a Global Context
THE ROLE OF MANUFACTURING IN
ECONOMIC GROWTH
Manufacturing is a critical engine of the economies of
both developed and developing countries. Currently,
manufacturing represents about 17 per cent of GDP
and an equivalent share of employment. Further,
global manufacturing has grown at an average annual
rate of 7 per cent since 2010 (Figure 1).1
In developing countries, the manufacturing
sector provides foundational employment that
anchors
Figure
1.1 economic development. Manufactured
goods drive global trade as well as primary and
secondary demand for services, both as a direct
input to products and through the services
consumed by those employed in the sector.
While it is a strong source of employment globally,
manufacturing’s role as a driver of employment in
an economy diminishes as the country grows and
develops. The rate of decline is partially offset by
overall growth of the economy; however, across
the majority of developed country economies,
total employment in manufacturing has
declined (Figure 2).2
Manufacturing in the global context
World
growthINand
mixCONTEXT
by sector (nominal USD, billions)!
FIGURE 1GDP
– MANUFACTURING
THE GLOBAL
World GDP growth and mix by sector (nominal USD, billions)
71,918!
3%"
10%"
CAGR %!
6.9 4.4 17%"
Agriculture"
Industry"
Manufacturing"
70%"
Services"
7.3 6.9 5.9 32,347!
10%"
4%"
19%"
67%"
2000"
2012"
Source: World Development Indicators Database (2013)"
1. The World Bank (2013). World Databank, World Development Indicators. Available at: http://databank.worldbank.org/
data/views/variableSelection/selectvariables.aspx?source=world-development-indicators.
2. The World Bank (2013). World Databank, World Development Indicators. Available at: http://databank.worldbank.org/
data/views/variableSelection/selectvariables.aspx?source=world-development-indicators.
CANADIAN MANUFACTURING
In a Global Context
FIGURE 2 – MANUFACTURING IN THE GLOBAL CONTEXT
Employment in manufacturing and industry as % of total employment vs.
GDP per capita % (constant 2000 USD)
Thus, while manufacturing is and will remain an
important sector in developed economies, its relative
importance declines with the growth of services
that developed economy solidifies and consumers
demand. The past two decades have given rise to
three global forces that are reshaping the sector and
will have an important impact on Canadian firms.
GLOBAL FORCES SHAPING MANUFACTURING
Today, Canada’s manufacturing firms face significant
and increasing challenges to their competitiveness.
Many of these challenges are driven by a handful
of forces at work globally that are contributing to a
re-shaping of the manufacturing industry — raising
competitive intensity and consequently raising the
bar on the capabilities that firms must bring in order
to remain competitive. Globally there are three major
themes driving change in the manufacturing
sector and creating both challenges and
opportunities for Canadian firms.
GROWING TRADE LIBERALIZATION AND GLOBAL
DISAGGREGATION OF SUPPLY CHAINS
Growing economic and trade integration coupled
with a build out of inland and seaborne transportation
infrastructure is making it easier for goods and
services to move across borders (Figure 3).3
3. W
orld Trade Organization (2013). Statistics Database, Time series on international trade. Available at: http://stat.wto.org/Home/
WSDBHome.aspx?Language=E ; and Organization for Economic Cooperation and Development (2013). International Trade by
Commodity Statistics (ITCS). Available at: http://www.oecd.org/std/its/itcsinternationaltradebycommoditystatistics.htm.
CANADIAN MANUFACTURING
In a Global Context
Acceleration of global trade"
Figure
1.3
FIGURE
3 – ACCELERATION OF GLOBAL TRADE
Indexed Global GDP Growth vs. value of global trade (exports)
Index 1970 = 100 (nominal USD)
Indexed Global GDP Growth vs. value of global trade (exports) "
7,000"
Index 1970 = 100 (nominal USD)"
Value of
Re-exports"
6,000"
5,000"
Value of"
Exports"
4,000"
3,000"
Global "
GDP"
2,000"
1,000"
0"
1970"
1975"
1980"
1985"
1990"
1995"
2000"
2005"
2010"
2015"
Source: WTO Trade Database; OECD Trade Statistics (2013)"
The past decade has witnessed a dramatic rise
in global trade in manufactured goods. Exports
of manufactured goods have grown at two to
three times the rate of GDP growth. Moreover,
re-export of goods has grown at an even faster
rate, meaning that manufactured goods are more
frequently flowing between countries before
ending up in the consumer’s hands. In this context,
leading manufacturing firms are required to build
much stronger global supply chain capabilities
(market intelligence and execution) than ever
before. Countries and policy makers need to
adapt as well, building stronger global market
intelligence capabilities and working with domestic
and international manufacturers to facilitate
market access and free flow of goods to maintain
competitiveness. Service, trade and technology
growth that allow functions to be performed globally
exacerbate these competitive pressures.
SUSTAINED LEVELS OF GLOBAL FINANCIAL
UNCERTAINTY AND VOLATILITY IN INPUTS
The past seven to ten years have seen significant
increases in volatility of pricing of primary
commodities, many of which serve as raw inputs
to manufacturing processes. In conjunction with
this run-up in pricing levels and volatility, we have
seen increasing interconnectedness of commodity
markets, both physically and financially. One example
is the significant rise in seaborne liquefied natural
gas (LNG) trade over the past decade. Growing
seaborne LNG has created market access for gas
that was once ‘stranded’ and is creating global
pricing linkages between markets (Europe, United
Kingdom, Asia, North America) that once functioned
independently. Increasing interconnectedness of
markets coupled with rising volatility and overall
pricing levels significantly increase the importance of
building stronger risk-monitoring and management
capabilities at a firm in order to manage cost
structure, margins and supply risk.
CANADIAN MANUFACTURING
In a Global Context
PRIMARY DEMAND GROWTH SLOWING IN
DEVELOPED COUNTRIES AND SHIFT TOWARDS
EMERGING MARKETS
Post-financial crisis, many developed economies
continue on a slow path to recovery. High levels of
household and public sector debt, and a general tone
of austerity have created a drag on overall spending
patterns. This trend has direct implications on
primary demand for manufactured goods. Canadian
manufacturers are highly exposed to this risk, as
the markets traditionally served by the majority
of Canadian manufacturers tend to be developed
(whether domestically or cross border to the United
States and Continental Europe). In a low-demand
growth environment, margins can quickly fall victim
to rising42?<0
competitive intensity as existing players
try to maximize utilization of what is now excess
production capacity.While deceleration of demand is a
real phenomenon elsewhere in the world, developing
country economies continue to grow, albeit at a slower
rate than the past decade. China’s private (household)
demand continues to grow at a rate of two to three
times that of North America.
As developing economies continue to grow
and standards of living rise, demand for manufactured
goods (both basic and more advanced) continues to
rise as well (Figure 4).4 Firms looking to drive higher
rates of growth need to build capabilities to better
understand and serve emerging market demands
using local manufacturing capabilities or through
exports, depending on subsector.
7:-,7/08,9/4=8:@4920,=>
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(&"*(&,* (*
:<0.,=><0,7;<4@,>0.:9=?8;>4:92<:A>3
FIGURE 4 – GLOBAL DEMAND IS MOVING EAST
Primary demand (private consumption) size and growth by country
% real growth per year, dollar value of private consumption (USD, billions)
<0,72<:A>3;0<C0,</:77,<@,7?0:1;<4@,>0.:9=?8;>4:9)'-4774:9=
&-* &(
%!*($!(*)
0!&
/!*2(#%
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/%
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-)*(!
($%1 #!-$
(%
&(*-# '!%
*#1
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!#!''!%)
-!(!
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%!
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&#&$!
(%+%
&%&%
&(/1
&-* (! %2-#
(2!#
-)*(#!
-("1
!%#%
(#%
-))!
(* CAGR)
10 yr Historical growth rate!)*&(!#(&,*
of real private consumption (2001-2011
C<4=>:<4.,72<:A>3<,>0:1<0,7;<4@,>0.:9=?8;>4:9
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':?<.0)#'>,>=.:9:84=>9>0774209.0)94>
4. U
nited Nations (2013). United Nations Statistical Databases (UNSD), National Accounts Main Aggregates
Database. Available at: https://unstats.un.org/unsd/snaama/Introduction.asp; and Economist Intelligence Unit
(2013). Country Analysis. Available at: http://country.eiu.com/AllCountries.aspx.
CANADIAN MANUFACTURING
In a Global Context
CANADA’S MANUFACTURING SECTOR
IN COMPARISON
Reviewing data going back to the late 1990’s, we
observe that Canada’s manufacturing sector has
grown more slowly than some of its Organization
for Economic Cooperation and Development
(OECD) peers. In contrast, developing nations,
particularly China, have seen their manufacturing
sectors grow significantly in the period since 2000
— often as the beneficiaries of rising global trade
and offshoring and outsourcing trends. This developing country growth has often come
at the ‘expense’ of manufacturing output (GDP) in
developed countries (Figure 5).5 Canada’s overall
‘market share’ in manufacturing has steadily declined
over the past decade, falling from seventh globally in
2000, to 13th in 2010.
FIGURE 5 – MANUFACTURING GROWTH: CANADA VS. PEERS
Indexed Gross Value added (GVA) by Manufacturing Sector
Index 1998 = 100 (constant 2000 USD)
5. United Nations (2013). United Nations Statistical Databases (UNSD), National Accounts Main Aggregates Database. Available at: https://unstats.
un.org/unsd/snaama/Introduction.asp; and Organization for Economic Cooperation and Development (2013). International Trade by Commodity
Statistics (ITCS). Available at: http://www.oecd.org/std/its/itcsinternationaltradebycommoditystatistics.htm.
CANADIAN MANUFACTURING
In a Global Context
FIGURE 6 – MANUFACTURING IN THE GLOBAL CONTEXT
Share of global manufacturing GDP by country over time
2000
RK’
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
COUNTRY
United States
Japan
Germany
Italy
United Kingdom
France
Canada
Republic of Korea
Mexico
Spain
Brazil
Russian Federation
India
Australia
Netherlands
2005
SHARE OF
MFG GDP
25.2%
14.6%
8.6%
4.9%
4.2%
3.9%
2.7%
2.6%
2.6%
2.5%
2.0%
1.5%
1.5%
1.2%
1.2%
RK’
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
COUNTRY
United States
Japan
China,
Germany
Italy
United Kingdom
France
Republic of Korea
Canada
Spain
Mexico
Brazil
India
Russian Federation
Turkey
2010
SHARE OF
MFG GDP
23.2%
12.2%
9.9%
7.4%
3.9%
3.3%
3.3%
2.8%
2.1%
2.1%
2.1%
1.8%
1.6%
1.6%
1.1%
In the intervening period, countries such as China,
Korea and India have moved up in the global rankings
(Figure 6).6 Canadian manufacturing employment has
declined, and recovery has been slower from peaks at a
rate comparable to other OECD peers (Figure 7).7
Delving deeper, there are significant differences
in performance at a subsector level for Canada’s
manufacturing industry. Manufacturing is not a
homogenous sector. The impact of global forces, key
success factors and how we measure success will vary
by industry. A recent study by McKinsey & Company
RK’
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
COUNTRY
United States
China,
Japan
Germany
Republic of Korea
Italy
France
United Kingdom
India
Mexico
Brazil
Spain
Canada
Russian Federation
Turkey
SHARE OF
MFG GDP
20.8%
16.0%
11.5%
6.6%
3.3%
3.1%
2.7%
2.7%
2.2%
1.9%
1.8%
1.6%
1.5%
1.4%
1.2%
(“Manufacturing the Future: The Era of Global Growth
and Innovation”) divided global manufacturing
into five key clusters based on a number of criteria
including capital intensity, trade intensity, R&D
intensity and need for market proximity. These five
clusters provide a helpful starting point from which
to understand the competitive nature of the various
subsectors of manufacturing and how firms can be
competitive within their given cluster.
FIGURE 7 – MANUFACTURING GDP AND EMPLOYMENT
Employment recovery lagging output growth Canada manufacturing value add
and employment Index 2004 = 100 (constant 2007 CAD)
6. T
he World Bank (2013). World Databank, World Development Indicators. Available at: http://databank.worldbank.org/data/views/variableSelection/
selectvariables.aspx?source=world-development-indicators.
7. S
tatistics Canada (2013). CANSIM Table 281-0024. Employment (SEPH), unadjusted for seasonal variation, by type of employee for selected
industries classified using the North American Industry Classification Systems (NAICS); and Statistics Canada (2013). CANSIM Table 379-0031.
Gross domestic product (GDP) at basic prices, by NAICS, monthly (Canadian dollars, millions).
CANADIAN MANUFACTURING
In a Global Context
Adapting Mckinsey & Company’s key clusters,
(Table 8)8 shows that Canada’s manufacturing
base is concentrated in three subsectors and is
therefore heavily weighted towards regionally
competitive industries and exposed to swings in
commodity pricing. Given this location and sectorial
concentration, Canada’s domestic manufacturing
base is largely oriented towards serving U.S. demand.
This has exposed Canadian manufacturing firms
to significant challenges in the current economic
climate. Low future U.S. demand growth could
place continued pressure on Canadian exporters.
The combined weight of these challenges raises
the competitive bar for Canadian firms looking to
drive future growth. To remain relevant, they must
simultaneously overcome potentially significant U.S.
demand challenges while looking to expand their
physical market presence in markets with more
growth potential (Figure 8).9
Accurately measuring the performance and health
of Canada’s manufacturing sector requires going
beyond conventional methods and metrics. As Canada
looks to grow successful manufacturing firms, it is
important to acknowledge the inherent challenges
in the measurement tools that we traditionally use
to evaluate the success of Canadian firms and the
policies oriented towards supporting them.
It is increasingly clear that ‘traditional’
employment and value-add measures do not
capture the full picture for Canadian manufacturers.
Depending on the subsector, it is quite possible
— and in fact, likely desirable — that much of the
‘manufacturing value-add’ and employment driven
by a Canadian manufacturing firm will exist outside
of Canada’s borders.
8. Lawrence Centre (2013). Adapted from McKinsey & Company’s Global Institute report, Manufacturing the Future: The era of Global Growth
and Innovation. Available at: http://www.mckinsey.com/insights/manufacturing/the_future_of_manufacturing
9. Organization for Economic Cooperation and Development (2013). STAN Database for Structural Analysis (ISIC Rev. 4). Available at: https://
stats.oecd.org/Index.aspx?DataSetCode=STANI4; Statistics Canada (2013). CANSIM Table 379-0031. Gross domestic product (GDP) at basic
prices, by NAICS, monthly (Canadian dollars, millions). ; and Lawrence Centre (2013). Adapted from McKinsey & Company’s Global Institute
report, Manufacturing the Future: The era of Global Growth and Innovation. Available at: http://www.mckinsey.com/insights/manufacturing/
the_future_of_manufacturing. Future of Canadian Manufacturing researcher team analysis.
CANADIAN MANUFACTURING
In a Global Context
TABLE 8
SUBSECTOR NAME
Global innovation
for local markets
(~35% of global
manufacturing GDP)
WHAT ARE
THE DEFINING
CHARACTERISTICS
WHAT SUBSECTORS
ARE CAPTURED
KEY SUCCESS
FACTORS FOR FIRMS
High R&D intensity
Auto & transport
Availability of skilled
labour
High trade intensity in
intermediate inputs
Pharmaceutical and
specialty chemicals
Minimal trade in
finished goods
Machinery
Government regulation
(tariffs) / intervention
(e.g. support /
incentives)
Appliances
Focus on regional
assembly
Well developed supply
chains / global supply
base
Compete on quality/
innovation
WHAT WOULD A
SUCCESSFUL CANADIAN
FIRM LOOK LIKE?
Succeed through
exporting capabilities to
win in other markets
Leverage Canadian R&D
globally
Some Canadian
manufacturing facilities
to serve Canadian and
U.S. demand
Head office and R&D /
lead plants located in
Canada
Multiple Plants located
globally to serve local
market demand
Regional processing
Complex logistics
Food & beverage
(28% of global
manufacturing GDP)
Needs for freshness
and local adaptation
drive location
Printing
Rubber and plastics
Competitive labour cost
Automation
Proximity to sources of
supply and demand
Export local capabilities
(plant design / process
innovation) to build
presence in other markets
Relatively low R&D
intensity
Favourable regulatory
access
Head office and
coordinating functions
based in Canada
Relatively low trade
intensity due to
proximity needs
Well developed supply
chains
Canadian plants to serve
Canadian / US demand
Plants located regionally
based on access to
regional supply
High automation
3) Energy/resource
intensive commodities
High energy / resource
intensity
(22% of global
manufacturing GDP)
High capital intensity
Wood products
Availability of low cost
energy / inputs
Coordinating activities /
functions in Canada
Pulp & paper
Basic metals
Low tradability
price competition
Refined petroleum
products
Manufacturing facilities
located globally based on
total economics
CANADIAN MANUFACTURING
In a Global Context
TABLE 8 CONTINUED
SUBSECTOR NAME
(4) Global
technologies /
innovators
(9% of global
manufacturing GDP)
WHAT ARE
THE DEFINING
CHARACTERISTICS
High margin / high
value density
WHAT SUBSECTORS
ARE CAPTURED
KEY SUCCESS
FACTORS FOR FIRMS
Fabricated metals
Efficient manufacturing
scale
High capital intensity
World class talent
Semi-conductors
High trade intensity in
both components and
end products
Computers & office
machinery
Medical devices
High R&D and
technology intensity
(5) Labour-intensive
tradable goods
(7% of global
manufacturing GDP)
Trade terms and market
access
Availability of global
shipping infrastructure
High labour content
Textiles
Low labour cost
Globally
tradable
Furniture
Access to deep labour
pool
Jewellery
Favourable trade terms
WHAT WOULD A
SUCCESSFUL CANADIAN
FIRM LOOK LIKE?
HQ located in Canada
R&D / intellectual
property located in
Canada
Selected component
manufacturing located in
Canada (where Canada
has unique capabilities,
etc.)
Design / coordinating
functions located in
Canada
CANADIAN MANUFACTURING
Figure 1.8
In a Global Context
Manufacturing sector structure vs. peers"
FIGURE 8 – MANUFACTURING SECTOR STRUCTURE VS. PEERS
Canada over-weights in commodity and trade exposed sectors
% Mix of manufacturing value add by country by ‘cluster’
Canada over-weights in commodity and trade exposed sectors!
% Mix of manufacturing value add by country by ‘cluster’ 5%"
7%"
7%"
8%"
10%"
4%"
9%"
23%"
10%"
22%"
25%"
12%"
17%"
28%"
32%"
34%"
31%"
Global
average"
Canada"
29%"
17%"
10%"
52%"
Germany"
4%"
17%"
21%"
38%"
35%"
Korea"
Italy"
Labor Intensive "
Tradable Goods "
31%"
Global Technologies/"
Innovations"
22%"
Energy/Resource "
Intensive Commodities "
15%"
Regional processing"
22%"
Global Innovation for "
Local Markets"
US"
Source: OECD STAN Rev 4; CANSIM; McKinsey & Company; Team Analysis"
Consider the operations of a leading Canadian auto
parts manufacturer. Under conventional accounting,
we see its contribution to the manufacturing sector
as the value added generated from the firm’s
Canadian plants and Canadian exports. While the
auto sector in North America is showing signs of
recovery or growth, under our current accounting
framework the Canadian-based manufacturer will
only generate more economic impact by adding
or growing Canadian plants and improving its
profitability (making and selling more products
from Canada).
What we miss in this analysis is the global
expansion potential of our firm. Our auto parts
manufacturer has opportunities to work with its
assembly partners as the company expands in
China, India, Brazil, throughout Continental Europe,
and elsewhere in the world. Our Tier 1 firm can take
the challenging lessons learned in Canada and the
United States and build new, more competitive plants
in other markets. The nature of the subsector is such
that the supplier will never be able to serve these
markets using Canadian exports; however it can build
new plants in other markets and supply them with
Canadian capabilities and innovation.
To paint a more accurate picture of
how successful we are as a nation in building
successful Canadian manufacturing firms, a more
comprehensive set of metrics is required. We need
data to cover the landscape from how Canadian
firms are performing domestically in ‘traditional’
manufacturing, through to how well we are investing
and leveraging Canadian capabilities and innovation
to drive growth in foreign markets.
CANADIAN MANUFACTURING
In a Global Context
Notwithstanding the need for a more
comprehensive set of regularly reported measures
to benchmark successes, our review of available
data indicates that Canadian manufacturing firms
continue to face challenges driving growth at
home and tapping into opportunities abroad.
With an overarching goal of building more
successful Canadian manufacturing firms, we believe
that progress towards that goal should be visible
across the following measures:
a)
Growing domestic output in selected
subsectors: We would expect to see regionally
oriented subsectors growing — at least in
value added, and potentially in employment.
b)
Growing exports in high-value-density
globally traded products: For high-value
and innovation-driven subsectors, we would
expect to see growth in exports from Canada.
c)
Growing levels of investment: This could
include growth in investment in foreign
jurisdictions for selected industries in which
Canadian firms have opportunities to grow
globally. Likewise, we would see growth in
inward foreign direct investment (FDI) in
select regionally oriented industries in which
foreign firms see an opportunity to open
plants in Canada to serve North American
(or global) demand.
d)
Growing R&D spending that is competitive with
Canada’s global peers. When evaluated against
these metrics, there is significant room for
improvement. For example, Canada’s growth in
domestic output and employment has lagged
its OECD peers (Figure 9, Figure 10 and
Figure 11).10
FIGURE 9 – CANADA’S PERFORMANCE VS. PEERS
Global innovation for local markets cluster – Value Added
Global innovation / local markets cluster – value added
Index 2004 = 100 (constant local currency unit value added figures )
10. Organization for Economic Cooperation and Development (2013). STAN Database for Structural Analysis (ISIC Rev. 4). Available at: https://stats.
oecd.org/Index.aspx?DataSetCode=STANI4; Statistics Canada (2013). CANSIM Table 379-0031. Gross domestic product (GDP) at basic prices,
by NAICS, monthly (Canadian dollars, millions). ; and Lawrence Centre (2013). Future of Canadian Manufacturing research team analysis.
CANADIAN MANUFACTURING
In a Global Context
FIGURE 10 – CANADA’S PERFORMANCE VS. PEERS
Regional Processing – Value Added
Regional Processing cluster – Value added
Index 2004 = 100 (constant local currency unit value added figures)
FIGURE 11 – SUB SECTOR PERFORMANCE IN CANADA
Regional processing sector has been strongest
Canada manufacturing Employment by cluster
Index 2004 = 100 (constant 2000 USD)
CANADIAN MANUFACTURING
In a Global Context
In sectors that typically are associated with globally
tradable, high-value manufactured products,
Canada’s overall export market has declined globally,
as emerging economies have moved up the value
chain into higher value goods (Figure 12).11’
Relative to OECD peers, however, there are
some bright spots. Growth in exports in selected
high-value export categories — notably Pharma and
Aerospace — has outpaced our OECD peer average. In
Pharma, Canada benefits from a small starting base
for exports, and its proximity to the world’s largest pool
of pharma demand. In Aerospace, growth through the
late 1990’s and into the early 2000’s has slowed, and
global peers are catching up (Figure 13 and Figure 14).12
FIGURE 12 – GLOBAL SHARE OF INNOVATION DRIVEN EXPORTS
Canada’s share of global exports by industry (%)
11. Organization for Economic Cooperation and Development (2013). Innovation in science, technology and industry. Research and Development
Statistics (RDS), 2014 edition. Available at: http://www.oecd.org/science/inno/researchanddevelopmentstatisticsrds.htm.
12. Organization for Economic Cooperation and Development (2013). Innovation in science, technology and industry. Research and Development
Statistics (RDS), 2014 edition. Available at: http://www.oecd.org/science/inno/researchanddevelopmentstatisticsrds.htm.
CANADIAN MANUFACTURING
In a Global Context
FIGURE 13 – GROWTH IN VALUE OF EXPORTS VS. OECD PEERS
CANADIAN MANUFACTURING
In a Global Context
FIGURE 14 – GROWTH IN VALUE OF EXPORTS VS. OECD PEERS
13. Organization for Economic Cooperation and Development (2013). STAN Database for Structural Analysis (ISIC Rev. 4). Available at: https://stats.
oecd.org/Index.aspx?DataSetCode=STANI4; Statistics Canada (2013). CANSIM Table 379-0031. Gross domestic product (GDP) at basic prices,
by NAICS, monthly (Canadian dollars, millions) and Lawrence Centre (2013). Future of Canadian Manufacturing research team analysis.
CANADIAN MANUFACTURING
In a Global Context
FIGURE 15 – UNDER INVESTMENT IN MANUFACTURING SECTOR
Capital Stock in Manufacturing Sector vs. Total Economy
Net Capital Stock Index 2004 = 100 (constant local currency
unit value added figures)
One key area of concern is that the country’s manufacturing
base has suffered from lack of investment. Canada’s
manufacturing capital base has not grown since the early
1990’s. In an environment where scale is critical, and
productivity required to overcome wage gaps, investment
is key (Figure 15 and Figure 16).13
CANADIAN MANUFACTURING
In a Global Context
FIGURE 16 – INVESTMENT FLOWS: MANUFACTURING
Finally, available evidence shows that Canada’s
R&D funding lags its peers. Recall that many of
Canada’s manufacturing firms operate in sectors
in which R&D intensity is high, and innovation takes
place on a global scale; the Auto sector is a key
example of this phenomenon. As wage and input cost
competitiveness are no longer sufficient to ensure
competitive edge, the ability to innovate in order to
drive new products or transform processes becomes
increasingly important. Combined public and private
sector R&D spending data shows Canada’s global R&D
stature declining on a relative basis (Figure 17).14
14. O
rganization for Economic Cooperation and Development (2013). Innovation in science, technology and industry. Research and
Development Statistics (RDS), 2014 edition. Available at: http://www.oecd.org/science/inno/researchanddevelopmentstatisticsrds.htm.
15. Organization for Economic Cooperation and Development (2013). Innovation in science, technology and industry. Research and
Development Statistics (RDS), 2014 edition. Available at: http://www.oecd.org/science/inno/researchanddevelopmentstatisticsrds.htm.
CANADIAN MANUFACTURING
In a Global Context
FIGURE 17 – R&D INVESTMENT TRAJECTORY
Research and Development Investment as a % of GDP (current USD, purchasing power parity)
In Canada’s R&D funding mix, private sector
investment levels lag its peer group while public
sector investment in R&D as a share of GDP is on par
with the rest of the OECD, there is a large shortfall in
private sector investment. Achieving U.S. or German
levels of R&D spending would require a near
doubling of private sector R&D spending in Canada.
This shortfall poses a significant future risk to
Canadian innovation, and consequently to the potential
future competitiveness of Canada’s manufacturers
(Figure 18 and Figure 19).15
15. Organization for Economic Cooperation and Development (2013). Innovation in science, technology and industry. Research and
Development Statistics (RDS), 2014 edition. Available at: http://www.oecd.org/science/inno/researchanddevelopmentstatisticsrds.htm.
CANADIAN MANUFACTURING
In a Global Context
FIGURE 18 – R&D INVESTMENT TRAJECTORY
Research and Development Investment as a % of GDP (current USD, purchasing power parity)
FIGURE 19 – R&D INVESTMENT TRAJECTORY
Total annual R&D spending per capita by country (USD)
CANADIAN MANUFACTURING
In a Global Context
ABOUT
THE AUTHOR
ANDREW DOONER
DIRECTOR, STRATEGY & OPERATIONS, KPMG
Andrew Dooner is currently a Director in
KPMG’s Strategy & Operations consulting
practice, based in Toronto. Andrew is
focused on working with both public
and private sector clients to develop
and execute growth strategy, and tackle
large scale, customer centered transformations. Andrew has
over 12 years of experience working globally as an advisor to
senior leaders in both public and private enterprises. He has
held leadership roles in strategy consulting at McKinsey &
Company in Canada and Europe; as well as senior corporate
strategy roles at a number of medium and large sized
Canadian institutions including BMO Financial Group, Sears
Canada, and the Pacific Carbon Trust.
CANADIAN MANUFACTURING
In a Global Context
ABOUT THE
LAWRENCE CENTRE
The Lawrence National Centre for Policy and
Management aims to bridge the gap between
business strategy and government policy by
providing a forum for business and government to
discuss policy development and implementation.
As a policy and management centre within
a world-class business school, the Lawrence Centre
is uniquely positioned to explore the areas of public
policy that have the greatest impact on business. The
Lawrence Centre educates future business leaders
in public policy and government leaders in business
strategy and conducts leading-edge research on
major issues that involve business-government
coordination.
The Centre was established in 2001
with a generous gift from Canadian businessman,
Jack Lawrence, HBA ’56, who was a strong
proponent of business playing an active role in
Canadian public policy.
PROJECT PARTNERS
Lawrence National Centre
a Global Management
Context
for PolicyInand
CANADIAN MANUFACTURING
Lawrence National Centre
for Policy and Management
Lawrence National Centre
for Policy and Management
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